Dubai Gold and Commodities Exchange (DGCX) is upbeat on churning out high volumes by attracting global players, making Dubai as unavoidable destination for currency and commodity trading. Relying on its main strengths, low-cost and higher safety in regulated environment, DGCX is launching three new currency pairs – Canadian dollar, Australian dollar and Swiss franc – in addition to the present euro, pound, yen and Indian rupee against the US dollar, on June 15.
Eric Hasham, Chief Executive Officer of DGCX, is confident of attracting foreign institutional players in a large number as the exchange offers counter-party risk protection and market makers for better liquidity.
DGCX, a fully automated commodities exchange, is an initiative of the Dubai Multi Commodities Centre (DMCC), Financial Technologies (India) Limited and Multi Commodity Exchange of India Limited (MCX).
DGCX is launching new currency pairs – Australian dollar, Canadian dollar and Swiss franc – against the US dollar, in addition to the present euro, pound, yen and Indian rupee. What's your projection after the launch?
In addition to the existing four currency pairs, we are introducing three new currency pairs on June 15. The currency and commodity products have been designed to help investors manage risk in the highly volatile market conditions. Additionally, the products support investment strategy too.
Owing to the demand in the region, we have decided to launch new currency pairs. There's good interest from commercial point of view for Australian dollar, Canadian dollar and Swiss franc. We see good industrial demand in addition to the increasing investment trading from investors.
Transactions in currencies of commodity-producing countries such as the Australian dollar and Canadian dollar have increased, because of the increasing volatility in the underlying commodities. The Swiss franc is seen as a traditional safe haven and investment opportunity during times of economic uncertainty.
The global crisis and its resultant impact on world economies have sparked sharp fluctuations in currency rates. DGCX's new and existing currency futures contracts enable participants to hedge exchange rate risk in a secure and well regulated environment.
The Swiss franc, Canadian dollar and Australian dollar enjoy healthy demand globally. DGCX's low transaction costs and extended trading hours, which bridge major time zones, is set to expand opportunities for market participants.
DGCX is witnessing good volumes in trading particularly in gold and currency futures. Is it because of uncertain conditions in world's major economies and high volatility?
Our focus was on gold and silver initially when the exchange was launched in 2005, but later on currency pairs were added owing to the market demand. There was impact of global economic crisis, but we continue to grow this year, too. Gold has been more liquid and continues to witness higher volumes. Despite the global uncertainty, year-to-date gains in currency trading on the exchange witnessed 128 per cent and 15 per cent in gold futures. This clearly indicates that the UAE is emerging as a centre for forex and commodity trading as the exchange offers transparent, secure and regulated environment to investors and institutions.
What is the progress in launching a series of benchmark indices that track commodity underlyings on DGCX? Is there a plan to frame market barometer for DGCX?
A DGCX partnered with German firm Structured Solutions AG, an integrated service provider in the derivatives sector, to launch indices that track commodities, targeted at the global investment banking and fund industry. These indices are being developed on a case by case basis at the specific request of their clients.
The first index based on DGCX commodity prices was developed by Structured Solutions last year exclusively for a European private client, whose name cannot be disclosed due to confidentiality reasons. Due to confidentiality reasons, we cannot disclose further details but the indices are already being developed.
DGCX has tied up with Shanghai Futures Exchange and the Tokyo Commodities Exchange and has achieved the Recognised Market Operator status in Singapore. Is there any plan to team up with other bourses? What's your take on consolidation among bourses?
We are open to collaborating with other entities in order to derive the benefits of synergy and product development. Unfortunately, we are not at liberty to comment on such plans unless they are final. We will, however, keep the market fully informed of any future steps in this direction.
Trading in INR futures is also quite encouraging. Is there any impact of the recently introduced currency futures trading in India?
In fact, we have benefited as India launched currency trading this year. It brought more awareness in the market about trading the INR contract as more numbers of contracts are available to the investors.
INR futures are gaining momentum on DGCX as traders are increasingly entering this segment in addition to the industrial demand. Initially, it used to be physical delivery and later we moved towards the RBI (Reserve Bank of India) dollar reference rate-based cash settlement mechanism. We see growth potential in the rupee contract. The INR futures contract offers hedging, investment and arbitrage opportunities with other markets.
How do you consider the present market conditions for launching the long-awaited futures in plastics, which DGCX was supposed to launch in December 2008?
Owing to conditions and feedback from the industry, we previously postponed the launch of futures trading in plastic.
Though market improved marginally this year, we still consider that time's not ripe for launching the product now. Our objective is to launch the right product at the right time.
The plastics futures contracts were designed for the industry and in conjuction with industry. While DGCX is ready to launch the product, we want to wait for the market participants to be ready in order to maximise participation and we don't feel that it's right at this moment.
What's the cost of trading at DGCX, when compared with other bourses?
We offer competitive cost of trading to investors. We charge 25 cents for day trade and 55fils for regular trades. Clearing fee of 10fils is same for both types of transactions. DGCX ensures counter-party risk security. The charges are same for all the products on DGCX.
There's increasing hedging activity and response from currency traders and foreign traders involved in export and import business is quite encouraging. DGCX also offers volume-based discounts up to 50 per cent to traders.
Despite high volatility, silver and oil futures are also not recording good volumes except a few sessions last week. What reason do you think are the reasons?
Owing to different reasons, the volume will be high on some days and low on other sessions. We are very keen on volumes and to ensure enough liquidity, we have market player system in place.
Is there any proposal to introduce euro-based or cross-currency pairs in addition to the present US dollar-based pairs?
We do see quite a good number of transactions in euro, pound and yen as day traders trade and exit one currency pair for another currency pair. Therefore, I don't see any need to launch cross currency pairs.
DGCX had 217 brokers and trading members last year. How many have been added this year? How's the profile of member brokers?
Currently DGCX has a total number of approximately 220 approved members. Eighty per cent of our membership base is from the region itself ie the Middle East and the Subcontinent. The remainder 20 per cent is from the United States and Europe. DGCX offers three types of memberships – trade, broker and introducing broker.
Leverage factor on DGCX is like minimum investment and minimum margin for each trade. How does the market maker system bring high liquidity and volumes?
The minimum margin payable depends on the DGCX contract traded and all margins are also subject to change due to external factors such as volatility. Please see the DGCX website and DGCX contract specifications for full details of margins.
Market makers are an essential part of trading activity as they bring in liquidity and competitive quotes to the markets, thus encouraging volumes and market participation. A market maker is a member firm, which could be a bank or a brokerage company that provides buy and sell quotes in a particular commodity or currency on a regular and continuous basis.
Is there any plan to offer options trading in other contracts?
We are constantly evaluating new initiatives and opportunities. Product analysis and development is an ongoing process that serves to fulfil the needs of both existing and new market participants.
As a corporate policy, we do not comment on new products that are under consideration, until such time they are ready to launch. We will keep the market fully informed on all new products as they are finalised.
PROFILE: Eric Hasham Chief Executive Officer of DGCX
Hasham joined the management team of DGCX as Head of Strategic Development in September 2008 and in November 2009, he became Acting Chief Executive Officer.
A highly experienced commodities and derivatives specialist, Hasham has substantial expertise in risk management, product and business development, clearing solutions and global trade practices with more than 19 years in the field.
He has advised, in a consultancy capacity, numerous blue chip companies and institutions within the commodities sector.
Between 2001 and 2005, he was Head of Product Development at Liffe, the derivatives arm of NYSEuronext.
Hasham has brought a wealth of invaluable commodities knowledge and financial services experience to DGCX.
He is looking forward to building on the success of the exchange and driving the organisation forward.